Why This Health System Leases Space to Donut Shops

Various health systems nationwide are embracing the “retail opportunity,” allowing restaurants, pharmacies and clothiers to lease ample space within their hospitals and outpatient buildings.

That’s the case at Chicago-based Northwestern Memorial HealthCare, according to Gina Weldy, vice president of operations and real estate at the health system. But Northwestern’s approach may strike some other systems as odd, given that Northwestern also leases space to “unhealthy” places, like donut shops.

Northwestern is a seven-hospital health system located in the Chicagoland area. The health system currently has more than 100 outpatient sites and about 70,000 square feet of retail space—all of which looks similarly to how “a normal retail environment might look,” Weldy said.

Usually, Northwestern leases to “fresh, healthy concepts,” Weldy explained—but not always. And the strategy has worked out marvelously for the health system.

In general it’s been incredibly successful,” Weldy said during a panel discussion at BOMA International’s recent 2017 Medical Office Buildings and Healthcare Real Estate Conference in Denver. “We have seen the return that we anticipated.”

Respite and amenitites

When originally deciding how to approach retail, Northwestern had a lot to consider.

“We had a lot of really rigorous conversations about what we could align with, and what would be successful,” Weldy explained.

The health system wanted its retail tenants to provide a respite for hospital patients, but also “an important amenity for [hospital] employees, who may only have 30 minutes at lunch to get things done,” Weldy said.

Luckily, convincing retail partners to come on board wasn’t very difficult, as Northwestern’s downtown Chicago campus offers them the density of midtown Manhattan.

“While you may not perceive yourselves as being in a dense environment like we are, if you actually measure the density within your buildings, there’s a significant retail capture opportunity,” Weldy explained.

Northwestern knew that nobody really desires to go into a hospital to “have a retail experience,” so it cut doors in the outer walls of its buildings to lease to places like restaurants and a full-service Walgreen’s, Weldy added. This further helped Northwestern’s 5-block campus blend into the larger Chicago neighborhood.

“We helped the neighborhood forget our size,” Weldy said.

Employees reacted so well to the new retail spots that Northwestern ended up closing its “heavily subsidized” employee cafeteria at its downtown Chicago hospital and replaced it with four healthy restaurants.

Northwestern also leases space to a couple of donut shops, though leaders feel justified in this decision.

“If a family is going through chemotherapy with their 3-year-old, they don’t really care right now about the healthfulness of the food—they’re going to give the child whatever makes them comfortable that day,” Weldy said.